Business Law

Introduction

(i) Elvis and Dionne’s claim against Mercury

It is noted at the outset that Elvis and Dionne have each lost £100,000 on shares in Holly plc as a consequence of reliance on an audit carelessly prepared by Mercury and Partners. This was obviously a serious and gross error.

Generally speaking pure economic loss (Wild and Weinstein, 2010, p462) cannot be recovered in claims for negligence (Horsey and Rackley, 2011, p170). Authority for the general rule is provided by Spartan Steel & Alloys Ltd v Martin Co (Contractors) Ltd [1973] 1 QB 27.

There is however an important exception to this general exclusionary rule. Negligent misstatement was recognised as a claimable tort in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL). In this case the House of Lords acknowledged that negligent misstatements (including such things as carelessly prepared audits that make certain specific claims as on the facts before us) have the capacity to support actions in the tort of negligence for damages designed to recoup any financial losses sustained as a consequence of reliance on a negligent statement.

Turning first to Elvis, the first condition is that a special relationship must exist between him and Mercury.

It is another concept (and further criterion), namely that of reasonable reliance (Rogers, 2010, p164). This was explored in the important decision of Caparo Industries v Dickman [1990] 1 All ER 568, which explained the concept of reasonable reliance as occurring in circumstances in which:

‘the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation.’

Dionne, however, is likely to be treated differently....